At the start of the first full day of the CFA annual conference, John Rogers issued a challenge to the members of the CFA Institute. Rogers, the organization’s CEO, did not mince words.CFA Institute | Here is the video of Rogers’ message.
“Our industry has forgotten what it takes to maintain the trust of clients, regulators, and the public as a whole,” he said. As a result, “Our profession has lost much of its good standing and public respect.” Alas, it has been “a failure of self-control” that has caused the damage.
So now what? According to Rogers, the CFA Institute intends to be a bolder voice for reform of the investment industry. He said that finance came to be thought of as an end in itself, to the detriment of the industry, its professionals, and society.
As advocates, the CFA Institute and other interested organizations can only do so much. Rogers’ message was primarily one of personal responsibility, that the profession is “at a fork in the road” because professionals have been standing by as the industry has done its thing, rather than standing up for the principles that the CFA was founded upon. Shortly after his speech, all CFA members around the world received an email with fifty ways to restore trust, culled from suggestions sent by charterholders themselves.
Look at the listCFA Institute | The list is entitled, “CFA Institute Integrity List: 50 Ways to Restore Trust in the Investment Industry.” and think how you’d grade the investment industry today, point by point. It’s a list of ideas, not a cohesive narrative, but it reminds us that it is within firms that the ethical battles must be won, professional by professional. We need openness instead of opacity, fees that are reasonable for the services provided (and the value added), client interests that come before a firm’s interests, and an absolute commitment to ethical behavior.
Of course there are many great firms and upstanding professionals. But despite the fact that you can do business the right way and still end up incredibly rich over time, the allure of the quick score is irresistible for many.
The night before Rogers’ speech, Heather Brilliant, the chair of the CFA Society of Chicago, quoted Albert Einstein: “Relativity applies to physics, not ethics.” However, the business runs to a large extent on relativity — relative performance, relative valuation, and endless games of follow the leader, chasing what’s hot until it’s not and cutting ethical corners in the process. “Everything is relative”the research puzzle | That was the title of a posting I did on these issues. could be the industry’s motto. Somewhere along the way, ethics became relative like everything else.
This is a unique business, with ethical challenges everywhere you look. In fact, in 2007 the CFA Institute published a monograph on the topic, The Psychology of Ethics in the Finance and Investment Industry.CFA Institute | The monograph is available free online. A few months later, you didn’t need to read the book to know that something was very wrong about the way the industry operates.
But what has really happened since then? By and large, the industry has fought reform at every turn, arguing that new regulations are onerous but demonstrating no resolve to change the way business is conducted on its own. Investment professionals are faced with a dilemma; to build a better industry we must tear down some of what passes as the way of the world, even at our own firms.
To quote Rogers, “Now is the time for action.” I couldn’t agree more.
See more postings about the conference.the research puzzle | This is the fourteenth (!) posting.